Archive for February, 2008

According to the old saw, "As January goes, so goes the year." Let’s hope that is only partially true this year, as shown in the below statistics.

Beginning

High

Low

End

% Change

(H-L)/Beginning (%)

S&P 500

1446.83

1447.16

1310.5

1378.55

-4.7%

9.4%

10 yr Treasury (%)

3.905

3.905

3.435

3.593

-8.0%

12.0%

3 Month Treasury (%)

3.237

3.249

1.941

1.941

-40.0%

40.4%

TED Spread (bps)

147

147

83

117

-20.1%

43.6%

IG to Treas Spread(bps)

192

226

189

189

-1.6%

19.4%

HY to Treas Spread(bps)

306

410

306

401

30.8%

33.9%

10yr -2yr Spread(bps)

98

150

122

150

53.7%

29.3%

Despite the press’ consistent harping about stock market volatility, the SP500 was only a fraction as volatile (measured by the high minus low for the month divided by the beginning value) as the 3 month T-Bill and the spread between LIBOR and the Bill. Yes, we can thank the Fed for this, but more likely this was an indication of money moving to the sidelines (cash like instruments) awaiting the right time to reenter…putting further pressure on the Fed.

And, as all fixed income managers know, January was exceedingly volatile in terms of spreads to Treasuries, as the yield curve continued its move toward a more ‘normal’ shape.

So, let’s not take our eyes off the ball. Significant valuation changes continue to occur in the fixed income markets and some of them are a negative result for insurers (who typically hold ‘spread’ product). If you didn’t like your manager’s performance in Q4, you may not be too happy about Jan 08 either.

Can investment grade managers truly add risk adjusted value with ‘active management’? During Q4 and, undoubtedly in January, the jury returned a ‘no’ vote for many.

Welcome…

Friday, March 2nd, 2007

From the Northwest Quadrant. We chose that name for this blog for its multiple meanings and to highlight a new beginning. Investment professionals are all familiar with the preference for building portfolios that are in the Northwest Quadrant of the risk/reward graph — improved return with lower risk. And, those of you who know Strategic Asset Alliance (SAA) know that our headquarters are located in the Northwest Quadrant of the lower 48 United States - Bellingham, WA. Of course, those of you who know SAA also know that our approach to improving the investment process, and with it the financial results, of our insurer clients goes well beyond the typical efficient frontier risk/reward graphing so familiar to pensions, endowments, foundations and others. And, that is the main purpose of this blog. To provide an ongoing commentary on how INSURERS can go beyond the business as usual approach to investments and improve their financial results, with the Northwest Quadrant as a point of departure. Your comments are most welcome on any entry in this blog. And, simultaneously with the introduction of this blog, SAA is introducing the Insurer Investment Forum Online - an opportunity to enjoy an ongoing Q&A with your peers and other experts on the investment process for insurers. Like Lewis and Clark, we stand in the Northwest Quadrant together ready to forge a new approach, but this time to improve the insurance invesment process for insurers. I hope you will join me on this adventure.